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June 11, 1998

 

STATEMENT OF

COMMISSIONER MICHAEL K. POWELL

DISSENTING IN PART

 

In this Report and Order, the Commission adopts rules to implement section 629 of the Communications Act. By and large, these rules are directly on target with the purpose of section 629, to "assure the commercial availability" of converter boxes and other equipment used to obtain multichannel video services from providers other than the programming distributor. For this reason, I support those portions of the decision that require operators to make technical interface information available and to make available a separated security device that will allow consumers to use commercially available equipment while still allowing the operator to protect itself against the theft of its services.

I respectfully dissent, however, from the portion of the Commission's decision that, to my mind, veers off target. Specifically, I disagree with my colleagues' decision to prevent multichannel video providers from offering set-top boxes that integrate security within the box (as opposed to a separable "point of deployment" or "POD" element) after the year 2005. I see nothing in the statute that requires this result and no persuasive policy reason to interfere with the market in this way.

First, let me address the statutory point. Section 629 clearly requires the Commission to "assure the commercial availability" of set-top boxes.(1) It does not mandate in any way, shape or form that we guarantee that retail distribution win out over operator supplied alternatives or that we tip the balance in their favor. Indeed, the statute squarely commands that "[s]uch regulations shall not prohibit any multichannel video programming distributor from also offering converter boxes."(2)

The real purpose of section 629 was to ensure that consumers are not hostages to their cable operators and can go elsewhere, if they choose, to obtain set-top equipment. As set forth in the conference report, "[o]ne purpose of this section is to help ensure that consumers are not forced to purchase or lease a specific, proprietary converter box. . .from the cable system or network operator."(3) We accomplish that objective by mandating that separate security pods are available. This allows commercial manufacturers to produce boxes without being inhibited by security specifications. And, it does so in a way that comports with the other provision of section 629 requiring the Commission to design rules that do not jeopardize the security of the multichannel system. It gives the operator control of the vital security component that they must have and that the statute mandates.(4) Both retailers and cable companies agreed on this reasonable compromise.

The Commission, however, has not stopped there. It has gone beyond the target established in the statute and adopted a regulation that interferes with market choices for equipment design. I fear that this decision may in fact contradict another goal of section 629, to spur innovation and competition. The legislative history of section 629 specifically states that "[t]he conferees intend that the Commission avoid actions which could have the effect of freezing or chilling the development of new technologies and services."(5) The record developed in this case includes evidence that potential competitors to incumbent cable providers are developing integrated set-top boxes with unique functionalities as a way to enter the market.(6) The decision of the majority today may well inhibit that development.

The question we must ask is why? The decision to ban eventually the availability of integrated boxes rests on the very speculative conclusion that integrated boxes are an "obstacle to the functioning of a fully competitive market for navigation devices by impeding consumers from switching to devices that become available through retail outlets."(7) We have not been asked to ensure that consumers switch to devices that become available through retail, only that they have that choice.

Quite apart from my statutory concern, I am further perplexed by the majority's divergence, without explanation, from our own instructive prior precedent. In the Equipment Compatibility Reconsideration Order, we stated with respect to the decoder interface standard: "we see no need to preclude cable operators from also incorporating signal access control functions in multi-function component devices. . .Our decision ensures that subscribers will have several competitive alternatives in selecting component descrambler equipment."(8)

The decision today sways from this judgment, without full explanation. It is too flip to suggest that this is just a different proceeding and a different provision. At bottom, the point of that prior decision was that ensuring customers have choice and then letting those choices govern the market is the sound way to go. It was there, it is here.

As Senator Burns noted in a letter to this Commission, our conclusion should allow "consumers to have the benefit of choice and of any lower prices that cost efficiencies of integrated equipment would generate."(9) I fear that the majority decision today denies a cost effective choice for consumers. It is quite plausible to me that the "impediment" to switching to retail may in fact be a consumer preference for distributor-supplied integrated boxes! I see no reason to attempt to control consumer preferences.

Many consumers may not elect to purchase boxes from their local retailer. They may find it inconvenient to have to hike out, plunk down hundreds of dollars for a box, and then get a security pod from their operator. Others may conclude that it is more prudent to lease a box from their provider rather than make an investment in a box, because of rapidly changing technology. These consumers should not be forced by regulation to lease a multi-component box (probably with other features such as VCR and DVD capability) at a higher price, simply because we, in our wisdom, decided "availability" should mean nudging consumers into stores and, at the outset, categorizing their possible preference for integration an "impediment" to retail availability. The market should be allowed to play this out.

In my opinion, fears that cable companies will obstruct or slow roll separate security devices into retail outlets is well addressed without banning integrated boxes. The rules preclude service providers from contractually or otherwise limiting the addition of features or functions to devices made available to retail outlets. And, the statute itself prevents cross-subsidization.

I believe these measures more than adequately address "anticompetitive fears." We talk so glowingly about letting consumers make choices in free markets, but, time and again, we cannot quite bring ourselves to trust either those consumers or the market. Because I am willing to trust the marketplace, I must respectfully dissent.


1. 1 47 U.S.C. 549(a). Section 629 was adopted as part of the Telecommunications Act of 1996. Pub. L. No. 104-104, 110 Stat. 56 (1996).

2. 2 47 U.S.C. 549(a).

3. 3 Joint Explanatory Statement of the Committee of Conference, S. Conf. Rep. 104-230, 104th Cong., 2d Sess. at 181 (1996) (Conference Report).

4. 4 47 U.S.C. 549(b) ("The Commission shall not prescribe regulations. . .which would jeopardize security of. . .services offered over multichannel video programming systems, or impede the legal rights of a provider of such services to prevent theft of service.").

5. 5 Conference Report, supra note 3, at 181.

6. 6 See Ameritech ex parte statement (June 4, 1998).

7. 7 ___.

8. 8 Equipment Compatibility Reconsideration Order, FCC Rcd. 4121, 4127 38 (1996).

9. 9 Letter from Senator Conrad Burns, Chairman, Subcommittee on Communications, Senate Committee on Commerce, Science and Transportation, to William E. Kennard, Chairman, Federal Communications Commission (June 4, 1998).